The Philippines in manufacturing GVCs: An overview

After decades of stagnant growth, in the 2010s, the Philippines emerged to become one of the fastest-growing economies globally, with an average annual gross domestic product (GDP) growth of 5.4 per cent between 2005 and 2015 (World Bank, 2016a). The country's economic development was driven by an expanding population, improvements in trade and investment conditions, and strong human capital. In 2014, total exports reached US$87 billion, while foreign investment increased five-fold between 2010 and 2014, accounting for approximately 2.5 per cent of the country's GDP that year (UNCTAD, 2016; World Bank, 2016b). These trends helped foster strong job creation, a key agenda for governments of the period, which placed a premium on an inclusive economic growth agenda (NEDA, 2011).

Export-led growth and the entry and upgrading of the Philippines in a variety of global value chains (GVCs) were important elements of the country's development. While services exports contributed significantly to growth, the Philippines also entered new manufacturing value chains and expanded both global and regional trade in niche product categories.Although the country was still a relatively small and low-value player in manufacturing GVCs compared to its regional peers in Asia, by the middle of the decade, it began to diversify, upgrade and innovate in a few select chains.

While electronics has been the country's largest global industry, the automotive electronics and aerospace industries were two sectors where the Philippines’ emergence and upgrading has been most visible. In addition to

becoming a hub for wire harness production, the Philippines increased its exports of automotive electronics and began manufacturing and assembling flight controls and aircraft interiors for the sophisticated aerospace industry. This upgrading boosted both the quality and quantity of jobs in the country – the assembly of wire harnesses is labour-intensive, and entry into the aerospace industry provided an opportunity for large numbers of engineers.

Involvement in these manufacturing GVCs was predicated on several factors, including: (a) strong human capital associated with a growing population, (b) favourable investment regimes and (c) exploitation of similar strengths across related value chains.